The anti-profiteering provisions under the Goods and Services Tax regulation has been grabbing headlines over the last few months. A slew of companies, including the retail major, Hindustan Unilever, have been handed notices for allegedly failing to pass on the benefits of GST to customers.Against such a backdrop, Godrej Consumer Products’ CFO, Srinivasan Vishwanathan discusses how his company is coping with the regime. Here in an interaction with ETCFO’s Mannu Arora he shares more details. Edited excerpts:

Anti-profiteering compliance under GST is one hot topic of discussion among CFOs. How are you making decisions around price revisions in the post-GST regime?

Srinivasan Vishwanathan: If you are asking me in the context of recent rate changes, none of our products are in that list. In the sense we don’t get any benefits or additional cost due to the changes that have been announced (in the 28th GST Council Meeting).

Of course, initially in July last year when the GST rates were announced, there was a reduction in prices for some categories, say soaps. We did what was advised by the GST Council in terms of publishing the revised MRPs (maximum retail prices) and in terms of ensuring close communication with our channel partners and distributors. We issued them credit notes to pass on the benefits to consumers.

We too are interested in ensuring that our product becomes more affordable. That is enabled via reduction in rates by the government. There is no reason (why) we should hold back and not pass on (the benefits to the consumers). In some categories, where there is fair amount of competition, we ourselves have ensured that the benefit is passed through.

We were clearly not worried by this anti-profiteering compliance because we were able to adhere to the (Council) expectations. We passed on the benefits to our consumers. This is visible in our growth quarter-after-quarter post-GST implementation.

There can’t be one specific or all kind of guidelines (for anti-profiteering)...So (I would say), CFOs must comply with the registration in (letter and) spirit and must have their own backups to support their positions.Srinivasan Vishwanathan, CFO, Godrej Consumer Products

You mentioned the price reduction in soaps. Could you share the quantum of benefits passed onto the customers here?

Srinivasan Vishwanathan: What happens is that there are multiple implications that play out. The price revision does not take into account only the change in tax rates, but also the way say the input credit taxes are availed. Or how the cost of service provider changes with the tax rates which they are paying. Where manufacturing is happening input tax credit varies for tax exempt areas.

Further, there are cost and working capital implications. This is not a one-size-fit-all kind of a model that one can prepare. Depending on the product category and the ways in which it is being manufactured and distributed, cost implications could be different.

While it is very easy to say that GST rates have gone up or gone down but the (price) implications could simply be very different for the exact change that has happened.

What we did was (that) we created a model based on our assumptions. One has to take some assumptions, say how the input cost will change, or the transitional credit will be availed, or what kind of working capital addition will be there. And then based on these assumptions, we arrive on the net benefit of GST rate cut and other allied changes.

That is how we re-priced the products wherever appropriate. It can’t be a formula or a model that I can share with you explicitly. I can’t quantify the reduction in this regard. It’s different for different product categories and different stock keeping units (SKUs).

Could you please share more details about this model you briefed about?

Srinivasan Vishwanathan: All of us have a cost sheet model for each product we manufacture. Eventually, you put the tax changes in that model and that indicates the increases or decreases in a cost.

Subsequently, a few assumptions and scenarios are created. Overall, we did get 7-10% benefits at the time when the (initial) reduction happened. This happened in two stages -- first in the July 2017 when the rates were first announced, and then in November 2017, when some of the other products like air coolers etc received some benefits.

In those instances, we operated with similar kind of models to ensure that we passed on to our consumers whatever benefits we accrued.

What will be your advice to CFOs struggling to get this compliance right?

Srinivasan Vishwanathan: Apart from formal guidance that came out from time to time, the responses of GST Council members as well as other bureaucrats in the ministry, officials etc are indicative.

As I said earlier, there can’t be one specific or all kind of guidelines in this regard. So (I would say), CFOs must comply with the registration in (letter and) spirit and must have their own backups to support their positions.

I think that should be fairly sufficient. I have spoken to some of my peers. And whenever, there are some inquiries and discussions with the anti-profiteering authority, if the finance executives are able to substantiate what they have done with reasonable amount of clarity, the authority is satisfied.

Do you have any suggestions for anti-profiteering authority or the GST Council?

Srinivasan Vishwanathan: In terms of suggestions, I would say they should be open to taking feedback on the hardships and concerns that are faced by all the stakeholders and also to act in the best interest of all these stakeholders.

Further, I think it (GST) is an evolving regulation. For instance, even today we have some delay in getting the GST related refunds. The mechanism is still not smooth. There is working capital blockage. These are all costs that corporates incur. This is not static, so one can’t have a static model (for anti-profiteering) and say this is what it is.

Srinivasan Vishwanathan: Quite a significant amount of refunds are pending. We hope that in the next couple of quarters, things will smoothen out. But I don’t want to get into the specifics.

Over the last three months, the government has launched three refund drives to smoothen the process. Have those helped you?

Srinivasan Vishwanathan: I think these drives are beneficial to small and medium scale enterprises which are export-oriented etc. That they are not kind of inconvenienced because their working capital requirements are quite tied up. I think these drives are helping people who are from these sectors to get their working capital back to a smooth cycle.